More Brexit trauma ahead for sterling?

Tuesday, November 01, 2016 - 01:45

UK manufacturing showed solid growth in October thanks to exchange rates driving up new orders, according to the latest data. But as Ivor Bennett reports, sterling could fall even further than some might want - a new poll forecasting lows of $1.15 when Britain starts formal divorce proceedings from the EU.

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There's no denying there are bright spots in the UK economy.
Manufacturing PMIs for October the latest to enjoy the so-called Brexit bounce.
But for many, this is still something to be handled with caution.
The boost in exports was down to the drop in sterling, which many believe is only just beginning.
SOUNDBITE (English) SIMON FRENCH, CHIEF ECONOMIST, PANMURE GORDON, SAYING:
"I think there's a real risk of it overshooting if negotiations are difficult. And I think there is a lot of noises currently ahead of the French and German elections that those two crucial powers in the European Union will play hardball with the UK."
The pound has dropped nearly 20 percent against the dollar since Britain voted to leave the EU.
A Reuters poll suggests it'll fall a further 5 percent when the official process starts.
But that's just a median.
Some forecasters suggesting the pound could even reach parity - the first such forecast in over 20 years.
SOUNDBITE (English) SIMON FRENCH, CHIEF ECONOMIST, PANMURE GORDON, SAYING:
"You're going to have to accept that there may be some downside as you go through arguably for the rest of this decade."
While manufacturers have adjusted, services may find it harder.
But warnings Brexit will cut the sector's exports by 60 percent may be overblown.
SOUNDBITE (English) SIMON FRENCH, CHIEF ECONOMIST, PANMURE GORDON, SAYING:
"Some of the marginal decisions on why services are bought from the UK and indeed services some companies locate in the UK may be impacted by Brexit. But there's a much broader factor of reasons why purchasing decisions, location decisions, investment decisions are made than solely access to the single market."
Brexit forecasts clearly aren't easy.
Just ask Mark Carney.
With the economy still stronger than expected, the Bank of England's not expected to launch any stimulus just yet.

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